Algeria prevails in dispute with Italian construction firms

By Suzy H. Nikiéma
28 November 2008

In a 12 November 2008 final award, an ICSID tribunal has dismissed all claims by two Italian investors, L.E.S.I S.p.A. and ASTALI S.p.A, in a dispute with the government of Algeria over a failed contract to construct a hydraulic dam.

While the contract with the National Agency for Dams (NAD) was signed in 1993, progress was severely hampered by security problems as Algeria descended into civil war. After nearly 10 years of delays, an amendment to the contract was proposed by the investors and accepted by NAD. However, the amendment required authorization from African Bank of Development, which provided funding for the project. The Bank refused authorization, and instead recommended a new contract, for which NAD would be required to put out another call for tenders. NAD consented and consequently terminated the contract.

In their claim, the Italians alleged breaches of the provisions on indirect expropriation, fair and equitable treatment, and full protection and security in the Algeria-Italy bilateral investment treaty.

In dismissing the charge of indirect expropriation, the Tribunal held that violating the contract does not, by itself, amount to expropriation. The Tribunal noted that the national laws of Algeria allow the unilateral termination of a contract by the State if compensation is provided. Given that NAD had committed to pay compensation, it concluded that expropriation cannot result from the mere absence of agreement on the amount to be offered.

The Tribunal also found no breach of Fair and Equitable Treatment provision, having determined that NAD’s decision to terminate the contract and launch a second call for tender was transparent and non-discriminatory.

(Notably, the Algeria-Italy BIT does not contain a Fair and Equitable Treatment clause; however, by use of Most Favourable Nation clause, the Italian investors benefited from the F&E clause in the Algeria-Belgium BIT).

Finally, in regards to the alleged breach of the full protection and security standard, the Tribunal held that this commitment is weaker during periods of war or civil strife. As with many BITs, the Algeria-Italy treaty provides two levels of application for this standard: one general offer of full protection and security to covered investors, and a second that prohibits treatment less favourable than that offered to national or third-party foreign investors during periods of war or civil strife. In a departure from some other tribunals, who have held states to a high level of protection in spite of civil unrest, this Tribunal determined that the two provisions cannot be used simultaneously, and considered armed conflicts to be exceptional situations which lead to a dispensation from the general principle.

The award in L.E.S.I. S.p.A. et ASTALDI S.p.A. v. Algeria is available in French at
http://ita.law.uvic.ca/documents/LESIAward.pdf